GST

What is GST?

GST is a new form of tax that seeks to replace all central and state taxes and levies such as excise duty, countervailing duty, service tax, value added tax, octroi, entry tax and luxury tax. Goods and services should be taxed based on the value addition at each stage and not based on the gross value of the goods or services billed at each stage. Further, tax should be eventually borne at the point of consumption rather than at the point of production, though the tax department must be able to track value addition at each step and collect tax proportionate to the value added at each stage.

GST is a single tax right from the manufacturer or service provider to the consumer. In this system, taxes paid at each stage will be credited in the subsequent stage of value addition. Thus, Goods and Services Tax charged by the final dealer (seller or service provider) is the final tax borne by the customer, with set off of all taxes paid at all earlier stages in the supply chain.

Journey of GST in India

• It will be levied on all goods and services produced or supplied or imported in India.
• Exports are not subjected to Goods and Services Tax.
• Goods that are kept outside its purview include alcohol for human consumption, petroleum products such as crude oil, petrol, motor spirit, high speed diesel, natural gas, turbine fuel and electricity.

Difference between GST Tax and Old Tax Structure

	Old Tax Structure	GST Tax
Number of Laws	There are separate laws for separate taxes and respective VAT on states	There is only ONE law
Tax Rate	Existence of separate tax rates	There will be one CGST rate and uniform SGST rate across all the states
Cascading effect (Taxes on Tax)	Presence of cascading effect of taxes due to multiplicity in taxes	Cascading effect is reduced which makes it very simple
Tax Burden	High tax burden on taxpayers	Tax burden is much reduced
Tax Structure	Presence of multiple taxes makes compliance difficult	Subsuming or absorbing the taxes into one makes compliance simple and easy
Prices for Consumers	Usually very high due to cascading effect of taxes	Prices are expected to be reduced

GST Exemptions

	Old Tax Structure	GST Structure
Goods
Food (essential unprocessed foods such as cereals, edible oil, vegetable, pulses)	Exempt	Exempt
Clothing	Low rate	Low rate
Medicines	Low rate	Low rate
Gold and precious metals (gems and jewelry)	Centre: exempt; States: low rate (1%)	Very low rate (2-6%)
Power	Centre: Exempt; State: Subject to Electricity Duty	Excluded i.e. State taxes will be continued
Alcohol	High demerit rate (states only)	Excluded i.e. State taxes will be continued
Tobacco	High demerit rate	Excluded i.e. Central and State taxes will be levied separately
Luxury cars	High demerit rate	High demerit rate
Aerated beverages	High demerit rate	High demerit rate
Petroleum	High demerit rate	Exempt for now, present tax will be continued till the time decide by GST COUNCIL
Real estate land	Exempt	Exempt
Services
Education	Exempt	Exempt
Health (excluding medicines)	Exempt	Exempt

Advantages of GST

For Manufacturers and Traders

• Easy compliance
• Uniformity in tax rates and structure
• Removal of cascading or compounding effect of tax
• Enhance the competitiveness
• Move towards development of a common national market

For Central and State government

• Simple and easy administration
• Improved compliance and revenue collections
• Better revenue effectiveness

For Consumers

• Payment of the single and transparent tax
• Reduction of burden of the taxpayers

Tax Laws before GST

• Before GST in India, the Taxation system was divided into direct and indirect taxes. The direct tax included Income and Wealth Tax, and the Indirect tax included Sales Tax, Excise Duty, Customs Duty, and Service Tax.
• The indirect tax was imposed on one person; the burden of it, however, was imposed on another person. In the direct tax, the burden was imposed on the taxpayer directly.
• The tax was collected by the State and the Center separately, also, different states had different tax regimes.

What changes does GST bring in?

The Goods and Services Tax or GST brought a major change in the taxation visuals in India. Earlier, different taxes were paid separately to the state and the center. However, GSTin subsumed all taxes into one, and now there is the practical application of ‘One nation, one tax.’ Some of the changes that GST brought in are as follows:

• No multiple taxes to be paid
• Replacement of indirect taxes like excise duty and sales tax into one
• Clear distinction of taxes on luxuries and necessities
• Introduction of simplified ways to fill Income Tax Returns and taxes, for instance through GST online portal or website
• Boost for Real estate and MSME sector
• Ease for transportation of goods, as no separate taxes
• Tax administration under both State and Central governments
• Transparency in the taxation process

FAQs